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UK Tax Credits
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TimesOnline 24 August 2006 Revenue U-Turn On Tax Credit Overpayments by Mark Atherton http://business.timesonline.co.uk/tol/business/money/tax/article618292.ece Opponents of the Government’s controversial tax credits system renewed their criticism this week after it emerged that the Revenue has reverted to its hard-line approach of clawing back virtually all overpayments. Last year, the Government bowed to pressure and made changes to the system of means-tested allowances, which were introduced in April 2003 and designed to boost family income and help members of lower-paid households into work.
Instead of fighting to recover almost every one of the overpayments it had made to millions of families, a process which led to a huge backlog of disputed cases, it adopted "streamlined procedures" last summer. These procedures allowed more disputed overpayments to be written off where an excessive amount of paperwork was involved. In last December’s Pre-Budget Report the Chancellor took a further step away from a hard-line policy by declaring that, from this April, the Revenue would not seek recovery of overpayments in any year where a household’s income had changed by up to £25,000 (ten times the previous figure).
Since 2003, 168,000 families have successfully argued that the Revenue should not seek recovery of the overpayments they have received, though this is still less than one third of the total of 609,000 households that have disputed an overpayment claim. But this year the Revenue has reversed it’s "softly, softly" approach and reintroduced its much tougher test for waiving an overpayment. This requires claimants to show that any overpayment was due to a Revenue error and that it was reasonable of them to believe that the amount paid was correct. The result has been a dramatic fall in the number of overpayments that are written off. In April, about 30,000 families disputed an overpayment claw back but just 100 were successful in having the money written off.
Mike Warburton, senior tax partner of Grant Thornton, the accountant, said: "It appears that the Government has done a double u-turn over tax credits. Last year, it acknowledged by its changes in the Pre-Budget Report and its ‘streamlined procedures’ that the system was unfair. Now it appears to be reverting to that very same unfair way of operating."
Robin Williamson, technical director of the Low Incomes Tax Reform Group, a body which speaks for the lower-paid, said: "The Government is going back to the old system in which the dice were loaded against the recipients of tax credits. If the Revenue, with all its experts, cannot spot a mistake in an application, it is not easy to see how an ordinary claimant can be expected to do so."
Danny Alexander, Liberal Democrat Work and Pensions spokesman, said: "I have noticed in the past three or four months that the Revenue has been adopting a much tougher line in cases where my constituents have been disputing tax credit overpayments. It is unacceptable that the Revenue is allowed to act as investigator, judge and jury in these cases. I think individuals should have a right of appeal to an independent body."
Mark Francois, Shadow Paymaster General, said: "The Government made a great play of raising the income disregard for tax credit overpayments to £25,000 in the Pre-Budget Report. But it refused to say how much this would cost or how it would pay for this. It now looks, as we feared, that it is doing so by taking a much tougher line on the general adjudication of tax credit overpayments."
A spokeswoman for the Revenue said: "The streamlined procedures were to deal with a specific backlog of cases. The backlog has now been dealt with so we no longer needed these procedures from late 2005. Accuracy in processing and calculating awards has already risen from 78.6 per cent in 2004-04 to 98 per cent in 2005-06."
Tax-News 20 September 2005 UK's Inland Revenue Deleted 1m Records 'By Mistake' by Amanda Banks A report released last week by the UK's Public Accounts Committee contains severe criticism of the Inland Revenue's administration of its tax credit system, and reveals that housekeeping software installed by the Inland Revenue to delete old cases also deleted almost one million live tax records between 1997 and 2000. Says the report: The operation of Tax Credits has proved unsatisfactory for a significant minority of claimants who were disadvantaged and who cannot understand how much they are due or why in so many cases such large overpayments have been made. The Department does not have sufficient information about the claimant population to enable it to provide good service to the public and avoid disruption to its own main business of tax administration. The Department should review the information provided to claimants to enable them to understand their Tax Credit awards, and should develop as a matter of urgency the operational information needed to manage the Departments relationship with claimants and the effects upon them.
Members of Parliament have been inundated with distressing complaints from constituents whose lives have been affected by the Departments management of Tax Credits. The Department has also received a large volume of complaints about Tax Credits, as have the Citizens Advice Bureaux. The current appeals and complaints procedures do not include any independent process, however, and the Department remains the final arbiter. The scale of overpayments being recovered from claimants is much higher than envisaged when the Tax Credit scheme was designed. Tax Credit initial awards are provisional and the final award for the year in question is often significantly reduced because the claimants pay has increased by more than 2,500 pounds, which is disregarded. This leads to recovery of the overpayment. The Department published figures in June 2005 showing that some 1.8 million (33%) of claimants had been overpaid in respect of 2003 04. The Department should review and report each year on the effect on claimants of the inbuilt overpayment and recovery of substantial sums of money so that Parliament can judge whether the consequences for claimants are compatible with its intentions in passing the legislation. The Department cannot show whether error rates attributable to claimant error and fraud have halved as it predicted in December 2003. The Department undertook to report on this issue by July 2005, by which time over 30 billion pound would have been spent on New Tax Credits. That report should quantify and analyse in detail the estimated overpayments due to fraud and error; set out targets for reducing overpayments and plans for achieving them; and show the performance indicators used by the Department to manage Tax Credits.
Schemes that are intrinsically complex carry the risk of being too difficult for the intended beneficiaries to understand and for departments to handle. The Accounting Officers ability to guard against fraud and error, and to secure economy, efficiency and effectiveness, may also be impaired by undue complexity. Accounting Officers should see that Ministers are made aware of the risks presented by unduly complex schemes, and if necessary be ready to seek a Ministerial direction where such schemes would be hard to implement to an acceptable standard. The Department estimates that routine housekeeping software incorrectly deleted almost one million taxpayer records in the period 1997 to 2000, resulting in over 360,000 unidentifiable taxpayers not receiving repayments due and 22,000 others not paying tax that was due. The software had been in place for at least 10 years, and had been deleting live files since its installation, but not to such a massive extent. The Department needs to maintain reliable and comprehensive management information to monitor the operation of IT systems, including data that would enable unintentional record deletion or loss to be detected promptly.
The problems in administering Tax Credits have entailed some impairment of the Inland Revenues reputation for accuracy, fairness and proper handling of taxpayer affairs. The Departments effectiveness in managing the tax system depends on maintaining public confidence in its administrative competence. It needs to demonstrate and convince taxpayers that it has resolved the problems caused by Tax Credits; caught up on the backlog of other work; and maintained its capacity for timely, fair and accurate processing of taxpayers affairs.
Quote "We are talking here about your core data on taxpayers", said Conservative MP and Committee Member Richard Bacon at a Committee hearing. "How could a program have existed for such a long time that allowed that to happen?", he queried. In response, David Varney, Executive Chairman of HMRC, explained: "I think it existed because the connection was not made between the build-up of open cases and the length of time and this routine, so this routine was seen separately from the build-up of the open cases". According to the report, HMRC has now changed its systems, and stores data deleted from the database on a backup file, so it can access it if necessary. |
